What is the secret to South Korean inflation?

The economy of South Korea is like a fairytale story – what once was a poor and economically weak country, today is one of the strongest ones in the world. Korean unique position in the financial world comes mainly from family-owned conglomerates called chaebols. And though chaebols lead the country high up to be a part of G-20 and OECD, they are actually slowing the growth expected from future generations, according to the experts.

Still, Korea is one of the world’s tech leaders. It is considered that the reason for the technology boom and economic development it follows is a highly motivated and educated population. South Korea is one of the fastest-growing countries in terms of economy. It is also one of the few that managed to avoid recession during the global financial crisis.

So, what went wrong? Today marks the weakest pace for the country’s economy since it started releasing the inflation data back in 1965. Some of the repeating factors of the situation include weaker consumer demand and declining farm prices, considering that the improved weather contributed to a boosted production.

Experts are warning that we are looking at the economically worst year for South Korea in the last 5 decades. The decline in economic growth is pushed even further due to growing domestic and external economic risks. This prompted the government to draft the most aggressive budget plan since the global financial crisis.

Ahead of the weakening inflation, the Bank of Korea is open to another round of interest rate cuts, after the surprising first one in July, which marked the first cut in the last 3 years. This was a rare occasion which created a joint stand between BOK and finance ministry, who both claimed there is no room for worrying about deflation.

Still, the second-quarter economic growth shows weakened exports. One of the strongest factors that are shaking up the world’s economies is the US-China trade war, which affects South Korea as well. In addition to the country’s own feud with Japan, the local companies are deterring from investing and hiring, adding to weaker demand. Experts are emphasizing that the Korean demand is typically low, so it shouldn’t be considered as the contributing factor of inflation.

 

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